The administrators asked the High Court for directions under the Insolvency Act 1986 Schedule B1, about how to apply CASS 7 to the client money that Lehman held.

There was a lot of unsegregated client money in the firm's house accounts because of the operation of the alternative approach, and also significant non-compliance of Lehman with CASS 7 over a long time.

Briggs J held the statutory trust imposed on the client's funds under CASS 7 arose as soon as a firm received them.

Turning to CASS7, there is no indication in CASS7.2.1R that the definition of “client money” is intended to create a trust in circumstances where the relationship under the general law could never be anything more than that of debtor and creditor.

That approach was simply introduced to give large firms a degree of administrative flexibility and it seems somewhat unlikely that it was intended to affect clients' substantive rights.

Against this, there is some initial attraction in the notion that the wider meaning would render the clients with money in the segregated accounts worse off, and it cannot have been intended that they should be prejudiced in this way.

In any event, unless the firm infringes CASS7, there should be no great disadvantage: client money should only be in house accounts for two working days at most, and, even then, it should be protected and should not be used for the firm's business (if my provisional view on the first issue is correct).Lord Clarke, Lord Dyson and Lord Collins held that, dismissing the appeal, CASS 7 was to be construed according to the purpose of the MiFiD 2004/39/EC and 2006/73/EC, to achieve a high level of protection for client money, with the prompt and scrupulous segregation of funds.

The decision that fiduciary duties were owed by a firm in respect of all client money was relevant to construe CASS 7.

... the questions raised by this appeal depend, not upon the ordinary law of trusts, but on the true construction of the relevant provisions of CASS 7.

I agree with Lord Neuberger at para 226 that, as he put it, it could be dangerous to look at the general law of trusts because CASS 7 is intended to be a code.Lord Dyson gave the leading judgment.

At para 57 of his judgment, Briggs J correctly stated that domestic legislation which is made for the purposes of fulfilling the requirements of EU law contained in a Directive must be interpreted in accordance with the following principles: (i) it is not constrained by conventional rules of construction; (ii) it does not require ambiguity in the legislative language; (iii) it is not an exercise in semantics or linguistics; (iv) it permits departure from the strict and literal application of the words which the legislature has elected to use; (v) it permits the implication of words necessary to comply with Community law; and (vi) the precise form of the words to be implied does not matter.

The recitals to MiFID include recital (2) which states "it is necessary to provide for the degree of harmonisation needed to offer investors a high level of protection" (emphasis added); recital (17) which states that persons who provide the investment services and/or perform their investment activities covered by this Directive should be subject to authorisation by the home member states "in order to protect investors and the stability of the financial system"; and recital (26) which provides: "in order to protect an investor's ownership and other similar rights in respect of securities and his rights in respect of funds entrusted to a firm, those rights should in particular be kept distinct from those of the firm".

Lord Walker says (at para 78) that the biggest objection to the claims basis of interpreting 7.9.6R is that it involves on the assumed facts of this case "a cataclysmic shift of beneficial interest on the PPE, to the detriment of those clients who must have supposed that their funds were safely segregated in accordance with CASS 7.1 to 7.8".

It is true that, on the assumed facts of this case, the claims basis can be said to involve a cataclysmic shift of beneficial ownership on the PPE.

But I have already counselled against allowing the exceptional nature of the assumed facts to compel a particular conclusion to the issues of construction that arise in this case.

In other words, such interest under the trust as any clients have is expressly on the terms of the distribution rules, of which 7.9.6R is the principal operative provision.

A declaration of trust over the balances standing to the credit of the segregated accounts is needed to protect those funds in the event of the firm’s insolvency.

When both elements are present they work together to give the complete protection against the risk of the firm's insolvency that the client requires.Lord Walker dissented.